Innovative Pathways in Africa: Navigating the Relationship Between Innovation and Insurance Market Development Through Linear and Non-linear Lenses

Abstract Innovation plays a critical role in fostering economic and industrial transformation. Its importance is further emphasised by Sustainable Development Goal 9, which highlights the need to build resilient infrastructure, industrialisation and innovation. Despite the growing literature on innovation, our understanding of how this improves the financial sector, particularly the insurance market, remains underexplored. Therefore, this study contributes to the sparse literature on innovation and insurance by exploring linear and non-linear relationships. The empirical investigation is based on the generalised method of moments (GMM) and the dynamic panel threshold estimation techniques on a panel of 30 African countries between 2011–2022. The paper provides strong evidence that is robust to several specifications from the GMM estimators, showing that innovation propels insurance market development. This is evidenced by its significant positive impact on total, life, and non-life insurance penetration. The study also found that the effect of innovation on insurance is much stronger in middle-income countries than in low-income countries. The dynamic panel threshold analysis documents significant threshold levels and reveals non-linear relationships between innovation and insurance (thus, total, life, and non-life) in the form of U-shaped relationships. Similar patterns are recorded in the sub-regional analysis according to their income levels. This suggests that increasing a country’s innovation capacity is crucial to driving insurance performance in Africa. Hence, African countries should scale up their innovation ecosystem. This requires collaborations between governments, corporations, and the global community to foster an atmosphere that promotes innovation to ensure insurance market development.